Months of lower revenues, diminishing returns and, in some cases, layoffs will end. However, the nagging question for local business executives remains: When? While the duration of the current economic downturn is unknown, Chattanooga-area companies have tackled adversity head-on. Refusing to adopt a bunker mentality or to cut and run, executives in major industry segments are leading initiatives to position their companies for a future that undoubtedly holds promise. Staying power is the key.
CityScope magazine interviewed local business executives to gain insights into how they are responding to challenging economic times, while at the same time positioning their businesses for future success. Their responses are candid, insightful, and optimistic.
Health Care
The changing landscape of health care impacts every home and family in America. The uncertainty over accessibility and affordability continues to create questions for businesses and individuals. Government intervention in the industry may dramatically change the status quo; however, neither the scope nor the substance of President Obama’s expected initiative are clear at this time.
The health care industry continues to cope with the demands of delivering services amid mounting costs and rising numbers of indigent patients. A morass of rules and regulations dictate protocols and impact both the provider and the recipient.
“While BlueCross remains financially strong, we are feeling many of the same pressures our customers are dealing with during this economic downturn, along with the added dynamics of health care reform,” relates Vicky Gregg, president and chief executive officer of BlueCross BlueShield of Tennessee. “As businesses have had to make difficult choices, some of the groups we serve have decreased in size, putting some stress on our membership levels. We are working hard on several fronts to reduce costs for us and our customers, including offering new group and individual plan options that increase affordability and access.”
Hospitality
While travel and tourism remain major components of the local economy, a subset of this industry segment encompasses hotel occupancy and its related economic impact. Mitch Patel, president and CEO of Vision Hospitality Group Inc., sees an upturn in the near future. For the summer season, Vision has created additional package deals designed to attract the leisure guest who is making Chattanooga a destination.
“These are unprecedented times in the travel industry,” Patel says. “However, we feel our industry is sustainable and will start rebounding sometime next year. Many markets are down 20 to 30 percent from just a year ago. Fortunately, in Chattanooga we have a much more stable economy. We do not get the extreme highs, but we also do not get the extreme lows. Chattanooga is also a relatively inexpensive place to visit, so that should only help during these times.”
According to Patel, Vision Hospitality Group has persevered through the current recession by focusing on service and sales. He considers the company well-positioned for consumers of varied demographics.
“We feel that with our brands and our service culture we will prevail through this downturn,” Patel comments. “People are traveling less; therefore, it is critical that we deliver consistently on an outstanding customer experience to earn and retain their loyalty. This, in turn, will ensure repeated stays. We have the ability to offer the right room to the right customer for the right price. We are in this business for the long term. We have to work harder and be more creative than ever before, but we should always be looking for opportunities to acquire talented people and to further ingrain our strong culture of service. The seeds you plant today will make the company stronger in the future.”
Residential Homes
Residential housing has perhaps suffered longer and more deeply than any other segment of the economy. While year over year sales in the Chattanooga area may be on the rise, the end of the downturn and oversupply of homes is still not yet in sight. If it is more comforting, just 100 miles to the south, Atlanta languishes in the throes of a residential real estate depression, as hundreds of homes - many of them unfinished - are being foreclosed.
Tim McClure, a residential builder and president of the Home Builders Association of Southern Tennessee, believes there are indications that the local market may be returning to normal. McClure has expanded into remodeling jobs and commercial projects to supplement his core revenue stream of residential home sales.
“At this time, the residential construction industry has made an upturn in the market,” McClure says. “My company has sold two custom homes in the last 30 days. I have seen a lot of new home sales in the existing home market, which has had an influence on the new home or custom home building market in the last 60 days.
“As far as my peers are concerned,” McClure notes, “I have seen some go from building to getting other employment. I have also seen other builders take on renovation projects that they normally would not do. They have to diversify and do additional work in order to make it through the downturn. I am glad to see the market starting to turn and contractors building new homes … enjoying what we do best.”
Banking
Frank Schriner, Chattanooga market president for First Tennessee Bank – a subsidiary of First Horizon National Corporation with $31 billion in assets and one of the top 50 banks in the U.S. - points to his company’s strong balance sheet and capital ratio, which positions the bank to withstand a severe economic downturn.
“We have also been aggressive in attacking problem loans,” Schriner says, “and we have spent a great deal of time providing value and advice to our customers. We have educated them on important banking issues, like FDIC insurance; but more importantly, we have reached out to them to provide support in this challenging economy. That means reviewing their finances through financial planning and lending money, which we continue to do actively in our banking footprint.”
Although Schriner describes the economy as in “rough shape,” he agrees with economists who speculate that conditions will remain difficult into 2010, improving as 2009 progresses. He says he is already seeing signs, which economists describe as “green shoots.” These signs include the slowing pace of job losses, a decline in business inventories, improving home sales in parts of the country, improved home ownership affordability, and slowly rising consumer confidence.
CapitalMark Bank & Trust CEO Craig Holley relates that the Chattanooga area is fortunate to include a number of banks like CapitalMark, which possess adequate capital and liquidity to weather the current economic storm even though a difficult credit environment may persist.
“I do remain optimistic about our future and those we compete against,” asserts Holley. “There are thousands of details to stay on top of to run a successful bank during normal times, and I have always felt like you need laser focus on three areas: risk, expenses, and spread. I would say that current economic conditions and the uncertain outlook have led us to realign those. We are still intently focused on them, but capital adequacy and liquidity have jumped to the forefront.”
According to Holley, a bank’s capital may be adequate, but an unexpected event can occur and result in the loss of capital, which is most costly and least available when it is needed the most. Therefore, the problem for some banks is that little or no cushion exists to absorb loan losses, which could result in a forced sale or failure. Conversely, too much capital can result in lower rates of return on equity and unhappy shareholders. As for liquidity, banks that exhaust their supply may be forced to sell or merge.
“Maintaining sufficient liquidity - but not so much that long-term earnings are impacted - is extremely important,” he says. “Banks also need a well-defined contingency capital and funding plan derived from realistic and honest behavioral assumptions looking into the future.”
Frank Hughes, president of Cornerstone Community Bank, views the role of community banks as one of stability and commitment to the local economy. “First, let me start by saying that Cornerstone Community Bank is well-capitalized and progressing nicely through this ‘Great Recession,’ ” he relates. “We, like other community banks, are a reflection of the community we serve, and Chattanooga, while not prospering, is certainly not suffering nearly as badly as other communities. What all bankers have to do is work through tough times with their stakeholders, which include shareholders, customers, and employees.”
Understanding the needs of businesses and working with them for mutual benefit are keys to future prosperity, says Hughes. “At Cornerstone, we work with businesses that are trying to establish themselves as solid, viable entities within the community. When the economy shrinks, times get difficult. The key to working through these tough times is teamwork. It is important that bankers be flexible and find ways for their customers to succeed. But it is also important for businesses to communicate with their banking partners.
“The time when you feel the least like talking to anyone about how your business is doing is precisely the most important time for that communication. After all, the customer/banker relationship is a true partnership. As long as there is transparency on both parts and a willingness to work together to meet mutual goals and expectations, it is a partnership that can stand the test of time.”
Manufacturing
“The power generation equipment industry’s dynamics remain fairly strong considering the economic situation,” remarks David Breckinridge, general manager of the local Alstom Power operation, which designs, manufactures and supplies such products and systems. “We are in an infrastructure business that requires a significant amount of long-term planning, and once a decision is made to invest in new equipment, it usually is not rescinded.”
Breckinridge, who also serves as chairman of the Chattanooga Manufacturers Association, continues to see opportunities for Alstom in the current economic environment. “To begin with, we have a significant backlog of orders for power generation equipment on our books. We also believe the demand for power will continue to grow in the mid to long term, leading to good long-term demand for our products. In addition, the economic situation has not decreased the need to address environmental regulations and, if anything, has increased the desire of customers to improve the efficiency of power generation equipment.”
The planned $280 million expansion of Alstom’s Chattanooga facility is tangible evidence of the company’s optimism for the future. It will create 350 new jobs locally and is expected to be fully operational in 2011, manufacturing turbines for natural gas and nuclear power plants and retrofitting existing steam turbines.
As for overall manufacturing in the Chattanooga area, Breckinridge notes, “Chattanooga is well-positioned to persevere through these very difficult times given the significant influx of new manufacturing …Volkswagen, Alstom and Wacker Chemie AG - the eventual supplier network to support each - and the strong base of existing manufacturers. The diversity of new manufacturing industries is impressive, and the level of technology each is bringing will only expand business opportunities in Chattanooga.”
Commercial Development
Jim Sattler, a veteran of the commercial development industry and CEO of EMJ Corporation for nearly two decades, sees the current recession as a deeper, wider and longer downturn than others. “The construction industry was last to come out of the previous downturn, and now we are going to be the last receiving benefits, unless you get into the areas where the government is spending money on the stimulus package,” he says.
The management of EMJ is looking objectively at how the company does business, including diversifying beyond its traditional construction services. Recently, EMJ established Accent Construction Management, a division offering a menu of services to business owners and customers. Another venture, Signal Wind Energy, is taking advantage of initiatives being offered in renewable energy.
“We are also looking at the assets we have, which are primarily people,” says Sattler, “and offering the services of a safety division, while a recruiting group is placing people for our group of companies and other companies, as well. We are actively seeking alliances with various groups, even in small business areas and federal contracts. We are also looking at more industrial and institutional projects, such as schools, to diversify further.”
P&C Construction President Royce Cornelison points primarily to a continued emphasis on quality and quantity of service with an eye on competitive pricing during the current economic slump.
“We have enlarged our geographic area of service,” Cornelison says. “In addition to our regular customers, we continue to seek out new high-quality repeat clients in other areas of the Southeast. A large percentage of the construction industry in our segment is struggling. Many have reduced their work force to be able to survive, and the competition on hard bid projects has increased by over 100 percent from this time last year. The immediate future is still looking very tough in the region.”
Despite the difficulties, Cornelison feels opportunities exist, particularly for a company such as P&C, which has actively cultivated the continuing confidence of its customers. While it is impossible to predict the future, he says P&C will continue to provide good quality work, honesty, and integrity.
Education
The commitment and dedication of faculty and staff are carrying the University of Tennessee at Chattanooga through the economic crisis. Dr. Roger Brown, the university’s chancellor, commended them for “taking the business of budget cuts very seriously” and says they have “worked hard to identify reductions.”
Brown continues, “We made the commitment to preserve our human capital and to avoid reductions in force wherever possible. This meant that we left open some critical positions and asked remaining employees to take up the slack.”
Meanwhile, UTC’s administration has actively sought additional sources of revenue, including a modest increase in tuition, increases in tuition for auxiliaries such as the Children’s Center and Cadek Conservatory, increased emphasis on private fundraising, and seeking corporate and government grants.
“Economic impact is a double-edged sword,” says the chancellor. “While we face budget reductions, we are seeing an increased interest in enrollment at all levels. Times of economic downturn have traditionally been times of increased enrollment for colleges because people come back to retool their skills. Clearly, as a state agency where the state is dependent upon sales tax, a downturn in consumer spending has a tremendously negative effect on our financing. We have seen the value of our endowments drop. We have more students seeking financial aid. And we realize that our students and their families are suffering the same economic hardships that we face as an institution, so we are committed to keeping tuition as reasonable as possible.”
While questions remain as to the potential benefit of the federal stimulus program, Brown is firm in the commitment of UTC’s faculty and staff to keeping the student experience in the forefront of planning. With that focus, he trusts the university will ride out the downturn and be well-positioned for the future.
Tourism
No economic slowdown can diminish the importance of tourism to the local economy, and Rock City has been a major draw for decades. Adjusting to the reality of the situation, however, President and CEO Bill Chapin has positioned his enterprise to capitalize on current conditions.
“I think tourism is a major economic driver for Chattanooga, and Lookout Mountain has been a destination for over 100 years,” Chapin remarks. “People are still driving to the mountain for the scenery, history and great natural attractions; and because of our Midsouth location, we are in a great position for travel in America.”
In recent years, there has been more to Rock City than Mother Goose Village and its other famous draws. “We have created seasonal programs that are reasons for locals to come back again and again,” notes Chapin. “Annual pass sales are up dramatically because we have added events like Shamrock City in 2008, Rocktoberfest in 2005, the Southern Blooms Festival in May, which builds on our heritage as a botanical garden, and our holiday event called the Enchanted Garden of Lights, which has been happening for 17 years and has become a tradition for families.”
Additionally, plans for the summer include musical performances on virtually a daily basis, encouraging visitors to spend a night or two in Chattanooga as a destination or en route to or from another city.
Charles Arant, president and CEO of the Tennessee Aquarium, acknowledges that general admission numbers remained flat during the last year of operations, but he also looks forward to growth from several initiatives.
“I think all of us have been hit with the tough economic situation,” he comments. “We are down with some of our group markets, such as school groups, but we are getting through it. I wish we had a crystal ball, but we are cautiously optimistic even though none of us have gone through this kind of economic upheaval before and no one knows how long it will take to work our way out.”
The Tennessee Aquarium continues to invest in attractions that are expected to draw visitors, including the Tennessee River Gorge Explorer, an excursion boat that offers a two-hour ride on the river, with a historian and naturalist on every trip. Also, in cooperation with the Hunter Museum of American Art, the Aquarium has opened “Jellies: Living Art,” an exhibit that combines six species of jellyfish and the glasswork of four noted artists.
For companies in Chattanooga and Hamilton County, difficult economic times have spurred innovation, given rise to alternative revenue streams, and created a greater focus on operating efficiencies. Business executives are leading difficult decisions to survive and ultimately thrive when the economy rebounds. There is no doubt that the current recession will end, and when it does, companies will emerge stronger than ever and well-positioned for future growth.